Retailers misunderstand their shoppers

It appears official that Tesco Plc, the United Kingdom's largest food retailer, won't continue in China under its own brand name.

According to an agreement signed last October with China Resources Enterprise Ltd, Tesco will retain a 20 percent stake in a joint venture but, as suspected, CRE's Vanguard brand name will replace the Tesco name.

But is this the right move for Tesco and CRE, or does it represent a massive misunderstanding of the needs and wants of the Chinese food retailer market?

Tesco brand reportedly to be dropped

How the cookie crumbled for Tesco

China's burgeoning urban middle-class shoppers are motivated very much by "prestige", "status" and "elitism". That's why China is fast becoming the largest market in the world for luxury goods.

Many Western brands have found that repositioning themselves more emotionally for the Chinese market leads to market share gain and an increase in profit.

For example, BMW, Ikea and even Pizza Hut and Starbucks are perceived as far more emotional and status-enhancing experiences in the minds of the increasingly affluent urban Chinese public, in comparison with North American and Western Europeans.

It appears that CRE and Tesco and others have overlooked this defining feature of Chinese consumer culture and aim to continue with a combination of "low cost" and "value for money" approach where food retailing is concerned.

This oversight is even more astonishing given that the Tesco brand originates from the UK, where Waitrose occupies just such a niche, that of a slightly exclusive brand of food retailer targeting the middle class.

In the UK, Waitrose shoppers are not just attracted by the higher quality and more exclusive and innovative nature of the range of goods stocked. They also perceive the Waitrose experience as status-enhancing. Shopping at Waitrose is part of being middle class.

Currently all food retailers in China, even the United States-based Wal-Mart Stores Inc and France's Carrefour SA, and including CRE's Vanguard, compete on "convenience" and "low cost" with a "value for money" range of goods.

Simply replacing the Tesco brand name with CRE's Vanguard is thus a massive missed opportunity to establish a "Chinese Waitrose" brand. Built on "exclusivity" and "status enhancement", such a brand would resonate with China's aspirational shoppers.

To achieve such an exclusive brand position in the minds of the Chinese, it is not only essential that higher-quality goods are on offer at a higher price but that all aspects of the stores and shopping experience communicate style and elegance.

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